Wednesday, June 20, 2012

Stocks Waver After Fed Announcement - Wall Street Journal

Investors gave a muted response to the Federal Reserve's efforts to juice the economy by extending its bond-buying program, but held off on more aggressive action that some investors were anticipating.

Associated Press

Federal Reserve Chairman Ben Bernanke.

In recent trading, the Dow Jones Industrial Average rose 24 points, or 0.2%, to 12860. Prior to the Fed's announcement, the Dow had declined about 30 points, and was off as many as 90 points initially following the central bank's statement.

The Standard & Poor's 500 index also erased its losses to edge up two points, or 0.1%, to 1360, while the Nasdaq Composite tacked on nine points, or 0.3%, to 2939.

The stock moves came after the Fed said it would extend its Operation Twist stimulus measure through the end of the year. As part of the program, the central bank sells short-term Treasurys and buys longer-dated ones in an effort to keep long-term borrowing costs down. Prior to the announcement, Operation Twist was scheduled to end June 30.

The Fed committee members said in the statement that they were "prepared to take further action" if needed. The Fed has said since January that it plans to keep short-term interest rates at "exceptionally low levels" at least through late 2014. The statement will be followed by a press conference by central bank chairman Ben Bernanke at 2:15 p.m. EDT.

Yields on longer-term U.S. Treasurys fell after the Fed announcement, as investors factored in more purchases of securities by the central bank. The yield on the 10-year note, which had been around 1.67% before the announcement, fell sharply before bouncing back to 1.6573% in recent trading.

Also after the announcement, the dollar moved higher against many of its rivals, including the yen. However, the greenback lost ground to the euro, which traded recently at $1.2718. Gold pared its earlier losses, shedding about 0.3% on the day. Crude oil futures fell about 2% to about $82.60 a barrel, after government inventory numbers showed a larger-than-expected build-up in crude reserves.

"There was a hope that the Fed would hint at doing more, but with the Greek elections this week, it may be a nice cautious move of the Fed to keep their powder dry until something more is needed," said Joe Kinahan, chief derivatives strategist at retail brokerage TD Ameritrade.

"The statement is good umpiring: they are calling them as they see them," said Michael Shea, managing partner at Direct Access Partners. "The market is comfortable with the Fed's current accommodative policy and although the first reaction was to sell off, you can see we've bounced back. If a whole new program was rolled out, you would have seen confusion and anxiety all manifested in a stronger, more pronounced sell off."

With the afternoon gains, the S&P 500 and Nasdaq are both on track for their fifth consecutive day of gains. For the Nasdaq, the four-day run is the first since February.

Prior to the Fed announcement, European markets finished broadly higher, with the Stoxx Europe 600 ending 0.6% higher after Greece's conservative New Democracy party secured a consensus for a coalition government with the Socialist Pasok party and the Democratic Left party. New Democracy leader Antonis Samaras was also sworn in as prime minister, removing a recent source of market uncertainty.

In London, the minutes from the Bank of England's last policy meeting revealed the central bank was close to pumping more stimulus in the U.K. economy. Also giving a lift to sentiment Wednesday, data showed that job growth in the U.K. in April reached its highest level in more than three years. The FTSE 100 index rose 0.6%.

Tensions also eased a touch in Spain, where the yield on 10-year government bonds slipped further below the key 7% mark and the IBEX-35 index tacking on 1.5%.

Asian markets were mostly higher on hopes of more stimulus from the Fed. Japan's Nikkei Stock Average rallied 1.1%, though China's Shanghai Composite bucked the trend to slip 0.3%.

In corporate headlines, Procter & Gamble tumbled to lead the Dow decliners after the blue-chip consumer products company lowered its earnings outlook for the current quarter and for the next fiscal year, citing slower-than-expected growth in developed markets. Rivals Colgate-Palmolive and Kimberly-Clark also fell.

Walgreen fell one day after tumbling 5.9%, to make it the day's biggest decliner among S&P 500 components. Wednesday's decline came after analyst downgrades, following Walgreen's $6.7 billion deal to buy nearly half of European pharmacy giant Alliance Boots. The deal marks a bet by the largest U.S. drugstore chain that it can expand in Europe as it grapples with declining sales at home.

Adobe Systems slid after the company provided a downbeat outlook for the current quarter, citing a weaker demand forecast in Europe.

Cisco Systems rose after analysts at BMO Capital Markets pushed its target price for the networking giant higher, arguing the current share price doesn't give the company credit for a strong valuation based on solid business execution.

Facebook eased one day after closing at its highest level since May 25.

Burger King Worldwide pared earlier gains to rise on its first day of public trading on the New York Stock Exchange.

Idenix Pharmaceuticals climbed after the company announced upbeat interim results from a Phase 2 study of its hepatitis C treatment.

U.S. stocks swung between gains and losses as investors weighed European discussions to step up efforts to fight the debt crisis and the Federal Reserve’s plans to extend its program known as Operation Twist.

The Standard & Poor’s 500 index fell less than 0.1 percent to 1,357.90 at 1:21 p.m. New York time. The index fell as much as 0.9 percent after the Fed’s announcement. The Dow Jones Industrial Average gained 16.65 points, or 0.1 percent, to 12,853.98 today. Trading in S&P 500 companies was in line with the 30-day average at this time of day.

Stocks recovered as German Chancellor Angela Merkel said bond purchases by the European bailout fund are a possibility, while European Union President Herman Van Rompuy’s blueprint for the euro was said to discuss jointly issued short-term bills, a debt-redemption fund and common banking supervision, according to two officials familiar with the work on the project.

“There’s a glimmer of hope that Germany might be loosening up a little bit,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “Just the possibility of bond purchasing by the bailout fund is huge. The reason is that earlier Merkel was saying she was not going along with this whatsoever.’’

The Fed will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of the year in a bid to reduce unemployment and protect the expansion. The original Operation Twist was set to expire this month.

‘Exceptionally Low’

Policy makers left unchanged their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The policy- making committee has kept the main interest rate in a range of zero to 0.25 percent since December 2008.

“The market was way too optimistic about getting QE3,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “People were throwing around numbers that were larger than what they announced for the extension of Operation Twist. It made no sense. It does seem like the Fed wants to keep some powder dry. They are doing the right thing.”

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

In a policy paper, China's cabinet blamed excessive exploitation and illegal mining for the decline.

China accounts for more than 90% of the world's rare earth supplies, but has just 23% of global reserves.

It has urged those with reserves to boost production of the elements, which are used to make electrical goods.

And in our Business Daily podcast, there's detailed coverage of the Earth Summit in Rio including reports from the world's largest iron ore mine, in the heart of the Amazon rainforest, and from Poland on cutting carbon dioxide emissions.

WASHINGTON -- Some of the toughest questions for JPMorgan Chase CEO Jamie Dimon during Tuesday's House Financial Services Committee hearing came from lawmakers who will either not be returning to Congress next year or will face steep hurdles to reelection.

The House panel is already known on Capitol Hill as the "cash committee" due to its members' penchant for Wall Street fundraising, but it will have even fewer critics of the financial establishment next year.

Rep. Barney Frank (D-Mass.), the ranking Democrat on the committee, provided some of the harshest questioning of Dimon early in the hearing, accusing Dimon of a "filibuster" and of deliberately misconstruing Frank's questions.

"I'm disappointed," said Frank, who is retiring at the end of the year.

Rep. Brad Miller (D-N.C.) pressed Dimon on a potential securities law violation, forcing him to dodge questions and resort to legally open-ended language about his "knowledge at the time." Miller has been redistricted out of his seat.

Later in the hearing, Rep. Brad Sherman (D-Calif.) bluntly declared that Dimon's bank is "too big to fail," and criticized Dimon for sending billions to London for risky derivatives trades, instead of lending the money to companies at home.

"You put forward the idea that ... there weren't small- and medium-sized businesses in the United States that were creditworthy that wanted the money," Sherman said. "And I assure you, there isn't a member of this panel that couldn't bring you 100 small- and medium-sized businesses, creditworthy, in need of loans from you. And instead, you took the $350 billion to London."

Sherman is embroiled in a bruising campaign against Rep. Howard Berman (D-Calif.), a contest prompted by a separate redistricting plan.

Although the Dodd-Frank financial reform bill bears Frank's name, Sherman and Miller have been more critical of the Wall Street establishment during their tenure in Washington, and are almost certainly paying for that vocal opposition with their seats. Sherman has been out-fundraised by Berman, a favorite of Hollywood and the entertainment industry. Miller wrote the major consumer protection rules on mortgage lending for the 2010 Wall Street overhaul, and like Frank, was a critical legislative negotiator who shepherded the bill through Congress. That effort earned him the ire of a host of bank-affiliated business groups in North Carolina, where two of the most active subprime lenders of the past decade, Bank of America and Wells Fargo, have a major presence.

The Tuesday hearing followed Dimon's appearance before the Senate Banking Committee last week. House lawmakers were at times more aggressive than their Senate counterparts, who inspired a battery of criticism for their deferential treatment of Dimon. Freshman Rep. Sean Duffy (R-Wis.) pushed Dimon on whether his bank was "too big to manage" or "too big to regulate," while Rep. Maxine Waters (D-Calif.) hammered away at JPMorgan's reliance on flawed risk-modeling techniques.

But the committee's efforts in general this year have been overwhelmingly acquiescent to the preferences of big banks. Its official website lists nine pieces of bank deregulation that cleared the committee in 2011, plus one bill limiting debt issuance by Fannie Mae and Freddie Mac (even though, as wards of the state, Fannie and Freddie do not need to issue debt).

Historically, that deference to finance is a bipartisan phenomenon. For years, both political parties have packed the Financial Services Committee and its Senate counterpart with vulnerable lawmakers who can use their perch on the panel to leverage campaign contributions from Wall Street. And the major focus of the committees' efforts over the past three decades has been to deregulate Wall Street, with the Riegle-Neil Act of 1994, the Gramm-Leach-Bliley Act of 1999, and the Commodity Futures Modernization Act of 2000. Dodd-Frank, passed nearly two years after the financial crash of 2008, was pilloried by loopholes imposed by members of the House and Senate banking committees.

The U.S. central bank said it would extend Operation Twist, under which the Fed has been gradually selling short-term Treasury securities and using the proceeds to buy longer-term bonds to keep their rates down. The current program was set to expire at the end of the month; it will now extend through the end of the year.

Procter & Gamble, the world's largest consumer products maker, predicted continued slow growth in developed markets and a slowdown in China. The company cut its estimates for fourth-quarter revenue and income. The stock dropped $2.46, almost 4%, to $59.75. That made P&G the biggest decliner in the Dow Jones industrial average.

Some of the same weakness that is being addressed by the Fed has forced Procter & Gamble to reign in recent price increases as people cut back on spending.

Consumer spending accounts for about 70% of economic activity in the U.S. With few companies hiring, the weak forecast from P&G was a worrisome sign that one of the country's most important economic engines may be weakening. P&G makes Tide detergent, Pampers diapers and Duracell batteries.

Investors are hoping the Fed will either keep buying long-term bonds to keep rates low, or at least signal that it's ready to act if the economy slows any more.

"The market's risk-averse sentiment is easing, and investors have quite high hopes for central bankers to help," said Kwong Man Bun, chief operating officer at KGI Securities in Hong Kong. "Investors are now taking a breather before looking at the problem of Spain."

Concern over Spain, Greece and the euro limited optimism over potential stimulus from the Fed.

Greek politicians continued to try to finalize a potential power-sharing deal to end weeks of political uncertainty there, while borrowing rates in Spain remained dangerously high despite a small drop on Wednesday. If they do not drop in coming weeks or months, Madrid is likely to have to ask for an international bailout to be able to finance itself.

Meanwhile, Spain's Finance Minister Cristobal Montoro denied that the country needs a full-fledged bailout of its public finances "because it does not need to be rescued."

Benchmark oil for July delivery was down 10 cents to $83.93 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose by 76 cents to end the day at $84.03 per barrel in New York on Tuesday.

“We're not here to make huge profits and to pay those profits out in dividends back to investors”

Charles GreenRangers chief executive

"It's something we all have to deal with, we all have to take responsibility for and we all have to come up with something that works not just for an individual club but for the whole collective.

"We've always said that we bought the club because we want to play a team in Europe, we want to rebuild the image of this club and everybody wants to play in the Premier League.

"Whether that can happen is out of my control. It's in the hands of the other members of that league."

Should Green not get the necessary support, Rangers would have to apply to the Scottish Football League for the vacancy that would arise in Division Three after various clubs are moved up a division.

Fans of SPL clubs have expressed a desire to see Rangers' application turned down on grounds of sporting integrity, but club chairmen may also be influenced by the potential financial implications of the Ibrox side's absence from the top division.

"My emails are blocked at the moment with fans thanking me for saving their club but making it very clear that Rangers fans will unite whether we play in the SPL the First Division or the Third Division," said Green.

"I know that Rangers fans will not desert this club. But it's important, not just for Rangers but for the whole of Scottish football, because the financial implications for the whole of Scotland, not just for SPL clubs, is a massive, massive problem to face up to.

"I think some of the views we see and some of the comments are not based on business and, of course, the criticism I regularly get burdened with is, for me, every decision is about business.

"It's not about passion, it's not about commitment to a cause.

"It's purely about doing what is right financially because if there is no money - and that doesn't just include Rangers Football Club, it includes the SFA, SPL and the old mantra of going right down to grassroots football - we go out of business."

Meanwhile, Green insists his group, which bought Rangers' assets last week, is "not in here to make a fast buck and disappear".

Former director Dave King has expressed concern about cutbacks, while former manager Walter Smith, who fronted an unsuccessful attempt to gain control of the club, has also been lukewarm about Green's plans.

"The investors who have come in have seen this as an opportunity to rebuild the club, but they see this as a long-term investment," added Green.

"We will be announcing further investors in the next few weeks.

"I'd just like to clear up one issue. We're not here to make huge profits and to pay those profits out in dividends back to investors.

"But this club has to make a profit because any business, whether it's a football club, a petrol filling station or a corner shop, has to do that.

"If it doesn't make a profit, it goes out of business and we haven't spent all our time and resources to acquire this club then allow it to go back the same way within a year."

A former member of Pearl Jam's management team has been charged with stealing $380,000 (£242,000) from the band.

Rickey Charles Goodrich was chief financial officer with Curtis Inc, the band's management company, when he is alleged to have taken money from the band's accounts. Prosecutors say he committed the theft beween 2006 and September 2010, when he was fired. He had begun working for Pearl Jam in 2005 and joined Curtis Inc the following year.

Goodrich has been charged with 33 counts of theft, and is expected to enter a plea on 28 June at his hearing at Seattle's King County Superior Court. Prosecutors say he transferred money from company accounts to pay debts he and his wife had accrued. He is also alleged to have used company credit cards to pay for personal items, including family holidays and wine.

The charging documents claim that hired investigators found Goodrich had claimed to have paid thousands of dollars to band-members and crew that remained unaccounted for. The band's manager had reviewed areas of their cash flow after becoming concerned by Goodrich's management of their money in late 2009.

According to the Seattle Post-Intelligencer, police claim the thefts cost the management company $556,000 (£354,000), including investigative expenses. Kelly Curtis of Curtis Management said, "We are deeply saddened by this situation," but added that he is "looking forward to a resolution".

Pearl Jam are due to headline the Isle of Wight festival this Saturday.